Chicago's Grant Thornton sued over Refco scandal

A class-action lawsuit filed in a New York federal district court faults Refco's auditor and its IPO underwriters for issuing "materially false and misleading statements about Refco's financial results" in documents supporting its Aug. 11 initial public offering.

Refco, its two top officers and underwriters were also named in the lawsuit. It's among the first of many lawsuits likely to be filed related to Refco's revelation this week that Phillip Bennett, its former CEO, transferred about $430 million in debts to an entity he controlled in an apparent attempt to bolster financial results. Those transactions were "hidden at the end of quarterly and annual reporting periods by reason of transfers to a third-party customer," Refco said in an Oct. 11 press release.

As Refco's auditor, Grant Thornton certified its financial statements without making a "reasonable investigation" that the results "were true, were without omission of any material facts, and/or were not misleading," says the complaint filed by Miriam Lieber, the disgruntled shareholder.

Grant Thornton continues to investigate the "matters reported by Refco in its press releases," says a spokesman for the accounting firm in a prepared statement.

While Grant Thornton emerged relatively unscathed from the accounting scandal involving Parmalat, the failed Italian dairy, Refco could prove more problematic, says Allan Koltin, a consultant to the accounting industry.

Parmalat involved an affiliate firm's audit of a company based in another country. Refco is a large U.S. company and a dominant player on Chicago's exchanges. "This could lead to a pretty ugly stain if, in fact, there were problems with the audit," says Mr. Koltin, CEO of Chicago-based PDI Global Inc.